MUMBAI: Indian government bond yields were expected to rise marginally in the early session on Monday amid caution ahead of the Union budget, and as states announce another round of heavy borrowing plan later this week.

Still, the rise in yields may be capped as the federal government is likely to keep its gross market borrowing below 16 trillion rupees ($196.26 billion) for the next financial year, according to a Reuters report, citing two sources close to the deliberations.

The benchmark 10-year yield could move in the 7.36%-7.41% range, a trader with a private bank said.

The yield ended at 7.3874% on Friday, posting its second consecutive weekly rise. Broadly, there is caution as was evident after Friday’s auction cutoffs, traders said. Indian states aim to raise 258.05 billion rupees through the sale of bonds on Tuesday, the second consecutive week where the quantum has risen above 250 billion rupee-mark.

The heavy supply comes after a debt issuance of around 640 billion rupees last week and at a time when market appetite is being tested as traders shy away from adding more positions before the budget announcement on Wednesday.

Indian bond yields tad down tracking US peers; green bond sale in focus

Sources from the government told Reuters the government does not want to destabilise the bond market with any negative surprises.

“Feedback from market participants is that a borrowing of 15.5-16 trillion rupees can be absorbed well in the next financial year,” one of the officials said.

A Reuters poll had pegged the borrowing at a record 16 trillion rupees, while some market participants had feared the borrowing to be around 17 trillion rupees.

Capital Economics expects the government to aim a fiscal deficit at 5.8% of gross domestic products in the next year that will keep the bond market onside, while also ensuring that the policy remains supportive towards the economy as other headwinds build.